Life Time's Earnings Surge During Tough Economic Times

Chanhassen, MN — Despite the continued struggles of the economy that have affected most of the club industry, Life Time Fitness, Chanhassen, MN, continues to experience steady growth, reflected in the second-quarter results that the company announced last month.

Life Time's revenue grew 18.7 percent to $192.4 million in second quarter 2008 compared to $162.1 million during the same period last year. Net income in second quarter 2008 grew 20.3 percent to $19.8 million, compared to $16.5 million in second quarter 2007.

“We saw further proof of our ability to perform in a challenging environment in the second quarter,” Life Time CEO Bahram Akradi said in a conference call with analysts last month.

Life Time's increased revenue was driven by growth in membership dues, which increased 18.2 percent compared to the same period in 2007, and in-center revenue, up 22 percent in second quarter 2008 compared to the same period last year. The in-center increase was spearheaded by the growth of personal training.

Memberships, which were at 489,489 on June 30, 2007, increased 11.9 percent to 547,497 on June 30, 2008. That's ahead of the company's initial plan for a 10 percent increase during that time, Akradi said.

“This positions us very well to accomplish our goal of 13 to 14 percent membership growth in the second half of the year,” Akradi said.

However, Life Time did experience a 38 percent attrition rate, slightly higher than anticipated, according to Life Time Chief Financial Officer Michael Robinson, but more people are also joining. Life Time had a net membership increase of 26,000 in the second quarter 2008 compared to 15,000 during the same time last year.

Akradi said that the attrition was due to economic factors and increased activity in membership price changes in the first half of the year. When asked if Life Time planned to implement one- or two-year membership contracts to combat the attrition, Akradi was emphatically against the notion.

“Philosophically, we think that's a very, very bad way of doing business with the customer,” Akradi said. “The customer should be at your club because you are keeping them satisfied and they want to be there, not because their ankles are tied up because of a contract.”

Life Time had 74 open centers on June 30, 2008, compared to 64 on June 30, 2007. Three new facilities and one acquired club are expected to open in the third quarter. Of the 74 centers, 54 are owned by Life Time. Akradi was asked in the call about the advantages of owning club locations compared to leasing property.

“All along, we told our shareholders that we like to own our real estate for flexibility and to give us equity in our company that gives us the ability to grow in just about any type of economic challenge,” he said.

Akradi is aware of the struggles other companies are having, but he said it may be another year before some struggling club owners decide it's time to sell.

“Occasionally, we talk to those people to see if we can help them out in any shape or form by providing a place for their members,” Akradi said. “We're well prepared to do what we can to benefit from it.”